Author: Viceroy Research

MiMedx cherry-picked a handful of bulls for the September 21 call last week, restricting access for their own investors and others with an interest in the events that transpired on the week ending September 22, 2017. During the call, analysts asked pertinent questions that remain substantially unanswered. To assist investors, we’ve compiled a list of items that were conveniently ignored, avoided or even blatantly misrepresented.

Dismissed “Deceptive Short Seller Reports”, including Viceroy’s, which presented evidence in the form of a withheld FOIA request suggesting that MiMedx was the subject of an undisclosed SEC enforcement investigation.

Announced that MiMedx are complying with an SEC subpoena, thus subject to an SEC investigation.

Failed to formally announce to the market that they are a subject of an SEC investigation. Viceroy requested management confirm whether it will fulfill their regulatory requirements by filing an 8-K in relation to an ongoing SEC investigation within the four days of becoming aware of it. If they have not filed an 8-K within 4 days of becoming aware of an SEC investigation, they are in breach of withholding material information from the investing public.

Been announced as the subject of an investigation by two securities litigation firms: Block & Leviton and Bragar Eagel & Squire, P.C. Both firms announced it had commenced investigations into a class action on behalf of MiMedx shareholders on September 22 and 25, 2017 respectively for not disclosing they were under SEC investigation, amongst other things.

Backdated government FAR & DFARS certification records as far as 2013 which were previously filled out by an employee, Don Ayers – who no longer worked at MiMedx at the time of certification – with Kimberley Durgan – who only commenced employment with MiMedx in 2014.

Backdated FAR & DFARs certifications remained signed with the authority of VP Brent Miller, whose LinkedIn status as of May 2017 is ‘Officially Retired’, and thus had no authority within MiMedx at the time of the amendments.

Announced it had come to a settlement of a confidential lawsuit with terminated employee Hal Purdy, a move we believe serves only to distract from the issues raised in our report which as yet go unacknowledged and undiscussed by the company.

Sean McCormack – MiMedx’s “New Market Initiatives Director” – was an instrumental figure in Advanced BioHealing’s kickback and bribery inducement scheme, which resulted in the largest settlement of a False Claims Act breach to date: US$350m settlement, and a US$600m+ write-down by Shire. At least 54 Advanced BioHealing alumnus have been identified by Viceroy within MiMedx’s sales force including at least 15 in senior employment positions.

A FOIA request was withheld by the Securities and Exchange Commission (SEC) suggesting MiMedx is the target of an undisclosed SEC enforcement investigation.

Former employees-turned whistleblowers accused MiMedx of aggressive channel-stuffing practices and improper revenue recognition policies. Their statement named many ex-Advanced BioHealing employees. Despite the fact these allegations having been withdrawn, Viceroy’s analysis found evidence supporting these claims in MiMedx’s financial accounts – there’s no smoke without fire.

MiMedx’s SAM compliance certification was filled out by Don Ayers, who was no longer employed by MiMedx at the time the forms were signed.

We believe that Mitsubishi Tanabe and its board need to immediately put a hold on the Neuroderm acquisition. We don’t know what representations have been made to Mitsubishi Tanabe by Neuroderm or others pushing this acquisition, but our research findings demonstrate the following:

Neuroderm has misrepresented the SIZE of the market, the RELEVANCE of their clinical study, and the EFFECTIVENESS of their ND0612 pump-delivered drug.

AbbVie’s Duopa/Duodopa pump is already ESTABLISHED in the market, has a SUBSTANTIALLY LOWER adverse effect rate, conducted its trials on an APPROPRIATE subject pool, and did not rely on SUPPLEMENTARY oral levodopa or entacapone, to boost its clinical trial results, unlike Neuroderm.

Neuroderm claims the size of ND0612’s target market across the USA and EU is ~350,000 patients. AbbVie’s superior pump has targeted the SAME market, only capturing ~3,500 patients.

The ND0612 drug is marketed towards ADVANCED stage Parkinson’s sufferers, however the efficacy study for the drug was conducted on EARLY stage Parkinson’s sufferers, which require substantially lower doses of the active drug component in order to be effective. We believe the FDA will closely review the stage 3 trials to ensure ND0612 is tested on an APPROPRIATE and RELEVANT subject pool.

Neuroderm’s ND0612 delivery pump is made up of GENERIC COMPONENTS and presents ZEROR&D proprietary value.

ND0612 is now only being tested for bioequivalence, not efficacy. While this may lead to a speedier FDA approved drug, Mitsubishi Tanabe is meant to be buying Neuroderm for its TECHNOLOGY. We see this concession as further evidence of Neuroderm’s weak R&D value, which Mitsubishi Tanabe thought it was buying with this acquisition.

Viceroy find Otzar Capital’s ties to one of Israel’s larger investment relations & public relations groups concerning, especially considering the potential connections between the IR/PR and Otzar’s reports. We have provided a portfolio of evidence in this regard to the SEC.

Viceroy have concerns that the Investors may have entered into such investments with what appears to be a lack of disclosure.

Otzar had to go all the way to suburban Miami to meet a Lowe’s retailer that sold Caesarstone’s transform. Congratulations, you got us.

Otzar’s most convincing arguments: our misuse of Cosentino’s major subsidiary vs the consolidated group accounts (which we are still unable to verify but will give the benefit of the doubt) adds to our thesis. Competitor margins in the consolidated numbers presented by Otzar are even smaller than Viceroy’s previous figures, making Caesarstone’s margins even more outrageous and enforcing our belief that Caesarstone’s costs are understated.

Otzar’s management and supplier derived volume calculations imply that either resellers are operating on ~300% mark-ups or Caesarstone’s facilities are producing well below capacity, yet amazingly they look to be correct! If this is the case, why build more lines?